On the 5th, it was confirmed that the financial authorities secured evidence indicating that an employee of the domestic private equity fund (PEF) MBK passed related information to an acquaintance shortly before a public tender offer, allowing them to gain unjust profits worth hundreds of millions of won. The financial authorities submitted relevant materials to the prosecution to ascertain the exact facts, but MBK maintained that no employees have been investigated by the financial authorities, firmly denying the allegations.
According to the financial authorities on the 5th, the Securities and Futures Commission under the Financial Services Commission notified the prosecution of Mr. A, an employee of MBK Partners, on suspicion of violating the prohibition on insider trading. Mr. A is alleged to have conveyed relevant information to acquaintances before MBK Partners announced its public tender offer plan for a specific listed company in 2023. It is reported that Mr. A's acquaintances purchased the stock right before the public tender offer and made hundreds of millions of won.
Market participants have long suspected that information leaks often occur before public tender offers by private equity funds. This suspicion arises from the frequent increase in trading volume and stock prices a few days before submitting tender offer reports. Last year, the stock price of Lock & Lock surged 11.6% the day before Hong Kong-based private equity fund Affinity Equity Partners announced its public tender offer plan. The trading volume also nearly increased tenfold compared to usual.
Accordingly, the Financial Supervisory Service has strengthened investigations into unfair trading related to public tender offers, during which it reportedly captured evidence of insider trading involving Mr. A's acquaintances.
The investigation into this case of unfair trading began last year following reports and notifications from the Korea Exchange. The Korea Exchange has a system for monitoring abnormal transaction activities that watches over price quotes, stock prices, and trading volume movements, requiring that suspicious accounts be reported to the Financial Supervisory Service.
In the case of public tender offers, if the acquaintance of an employee of a public tender offerer, such as a private equity fund (PEF), conducts massive transactions just before the public tender offer, they may be classified as a suspicious account. After receiving data from the Korea Exchange, the Financial Supervisory Service summons the parties for a face-to-face investigation.
However, the Financial Supervisory Service's investigation is discretionary. It requires the cooperation of the parties involved, and they cannot be compelled to attend if they do not show up. Even if they do attend, if they deny all allegations, the Financial Supervisory Service does not have the authority to conduct home searches or forensic analysis on communication devices such as mobile phones to secure additional evidence.
For this reason, the financial authorities filter out cases that are highly suspicious through several stages, including the Capital Market Investigation Deliberation Committee and the Securities and Futures Commission, before referring them to the prosecution. The prosecution will decide on searches and forensic examinations based on the materials received.
In relation to this, MBK Partners stated that the claims are entirely untrue. A representative from MBK Partners noted, “We have established a world-class compliance and internal control system,” and added, “No employee has ever purchased stocks using undisclosed information, nor have they been investigated for passing undisclosed information to acquaintances.”
However, because the Financial Supervisory Service notifies individuals of investigations into unfair trading, their affiliated companies may not be aware of it. Financial institutions are typically required to report internally when employees are subject to certain actions from the financial authorities, but this is merely internal regulation and not an obligation.
Since the Financial Supervisory Service has not secured evidence related to Mr. A's allegations, the truth of these allegations will be revealed through the prosecution's investigation. In the past, when other private equity funds were notified to the prosecution for similar cases, those investigations also ended inconclusively.